Three times a year, the American Medical Association convenes the Specialty Society Relative Value Scale Update Committee, a group that is charged with determining the value of various medical procedures. And as Haley Sweetland Edwards reports in the Washington Monthly, this committee has enormous power over the U.S. health system, as it essentially sets the prices the public sector pays for medical care — and private insurers in turn use these prices as their baseline for negotiating with medical providers. Edwards concludes by arguing that there are two alternatives to the current arrangement, in which the AMA is given outsized power: the federal government can create an independent, government-sponsored group that represents the interests of taxpayers rather than the medical profession, though even the most public-spirited group would find central planning on this scale difficult if not impossible; or Medicare can abandon fee-for-service medicine (FFS) entirely:

Reformers have been complaining for years that paying providers per procedure creates incentives for gaming and overuse that are difficult, if not impossible, to overcome. Under Obamacare, the CMS is already taking modest steps away from fee-for-service billing by expanding experiments in “bundled payments,” whereby providers are paid a lump sum to take care of patients with certain conditions, like diabetes or heart disease. The AMA, aware of the growing backlash in Washington against fee-for-service, has endorsed some of Medicare’s bundling initiatives.

But we need to go much further. It’s no coincidence that numerous studies have found that the best-quality and lowest-cost health care in America can be found in systems like Veterans Affairs and Utah’s Intermountain Healthcare where doctors are on salary and paid for keeping their patients well, not according to a fee-for-service system. As this magazine has argued (see Phillip Longman, “The Cure”), the federal government should set a certain date at which Medicare will pay only for health services provided by integrated systems.

Such a move would be fiercely resisted by organized medicine, and specialist societies in particular. But it would be the surest way to control the nation’s health care costs while improving health outcomes. And it would have a delightful side benefit: with fee-for-service eliminated, there would be no need to have thirty-one doctors sit in a ballroom in Chicago and centrally plan the pricing minutia of thousands of medical services and procedures. The RUC, in other words, would be made obsolete.

Edwards’ discussion reminded me of James Capretta’s writing on how Medicare FFS has shaped the broader health system:

Employers have been trying for years to move away from Medicare-style FFS in favor of steering patients to higher-quality, lower-cost ­networks of service suppliers. The private sector is also well ahead of the federal government when it comes to disease management and wellness efforts. But employers can only do so much when Medicare, the dominant payer in most health-care markets, pushes in exactly the opposite direction. Because Medicare will finance unlimited use, many individual practitioners and institutions see no reason to give up their autonomy and join an organized delivery model. All manner of ancillary service providers — labs, home health agencies, hospices, and others — also survive as stand-alone operations because of Medicare’s open network and provider-centric payment systems.

One way to facilitate the move from Medicare-style FFS to organized care delivery might be to adopt a competitive bidding approach to Medicare reform, as proposed by Roger Feldman and Bryan Dowd of the University of Minnesota and Robert Coulam of Simmons College. Under competitive bidding, a government plan and private plans compete offer bids to deliver a defined Medicare benefit, and the federal contribution’s premium contribution is pegged to the second-lowest risk-adjusted bid. Medicare beneficiaries would be free to pay more for a higher-priced plan or to pay less for the the plan offering the lowest risk-adjusted bid, in which case they’d be eligible for a rebate. As beneficiaries turn to lower-cost plans, plans would have a strong incentive to embrace organized care delivery models that yield savings relative to FFS. There are, to be sure, legitimate concerns about adverse selection, which Feldman et al. are careful to address.